For people in Texas and Arkansas who have family members with special needs, worry is a part of your daily life. When a dependent has an intellectual or developmental disability (IDD), you worry about how they will be cared for if they outlive you. If the disabled loved one is collecting government benefits, you worry about doing something that will disqualify them from getting the support they need. And even if you don’t have a loved one with disabilities, you worry about a child getting in an accident or a spouse having a stroke that causes an IDD.
To be sure, these are legitimate concerns that can keep you up at night. However, there are steps you can take to put your mind at ease. When you meet with one of our Special Needs Estate Planning attorneys to learn about the benefits of a Special Needs Trust (SNT), you will see that there are at least some worries that can be put to rest.
What Is an Intellectual and Developmental Disability?
Intellectual and Developmental Disabilities (IDD) refer to a group of disorders characterized by limitations in intellectual functioning and adaptive behavior. These limitations impact a person's cognitive abilities and their everyday adaptive skills. These disabilities may affect various aspects of life, such as communication, self-care, social interactions, and academic performance. IDD is a broad term that includes conditions previously referred to as mental retardation, developmental delay, or cognitive impairment. An IDD can be congenital, meaning the person was born with it, or acquired, meaning it developed after birth.
Congenital Forms of IDD
The most common congenital causes of intellectual disabilities include the following:
- Down syndrome. Down syndrome is a chromosomal disorder where an individual has an extra copy of chromosome 21. This condition results in intellectual disabilities and distinctive facial features and may also be associated with other health issues.
- Fragile X syndrome. Fragile X syndrome is a genetic disorder caused by the expansion of the FMR1 gene. It is one of the most common inherited causes of intellectual disability. Individuals with Fragile X may also display certain physical characteristics and behavioral challenges.
- Fetal Alcohol Spectrum Disorders (FASD). FASD is a range of conditions caused by prenatal exposure to alcohol. It can result in intellectual disabilities, behavioral issues, and physical abnormalities. Fetal Alcohol Syndrome (FAS) is the most severe form within the spectrum. It is the most common preventable cause of intellectual disabilities.
- Cerebral palsy. Cerebral palsy is a group of motor disorders caused by damage to the developing brain, usually before or during birth. While it primarily affects motor function, individuals with cerebral palsy may also have intellectual disabilities.
- Autism Spectrum Disorder (ASD). Not every person with ASD has an intellectual disability, but those who do can qualify for disability benefits. Assets set aside for their care should be protected by a Trust.
Acquired Forms of IDD
Intellectual disabilities can also be caused by an accident, illness, or degenerative disorder, such as the following:
- Traumatic Brain Injury (TBI). Acquired through head trauma, TBI can result in cognitive impairments and developmental challenges. The severity of the injury determines the extent of the disability.
- Lead poisoning. Exposure to high levels of lead, often through contaminated water or environments, can lead to cognitive impairments, particularly in children.
- Certain infections or illnesses. Infections such as meningitis, encephalitis, or illnesses that affect the central nervous system can lead to intellectual and developmental disabilities.
- Neurodegenerative disorders. Certain progressive neurodegenerative disorders, such as Alzheimer’s disease, can cause acquired intellectual and developmental disabilities.
- Stroke. A stroke, which results from disrupted blood flow to the brain, can lead to cognitive impairments and developmental challenges depending on the affected areas of the brain.
It's important to note that the term IDD encompasses a wide range of conditions, each with its unique characteristics and challenges. The severity of these disabilities can vary widely, and many people with an IDD depend on Supplemental Security Income (SSI) and Medicaid to live independent lives. Because these are income-based programs, your loved one could lose the benefits if you don’t proactively work with an Estate Planning attorney.
How a Special Needs Trust Protects Individuals With an IDD
A Special Needs Trust (SNT) is a legal arrangement designed to hold and manage assets for the benefit of an individual with a disability without jeopardizing their eligibility for government benefits such as SSI or Medicaid. These trusts are established to enhance the quality of life for individuals with special needs by providing for needs that are not covered by public assistance programs.
There are two main types of SNTs to consider:
- First-party SNT (self-settled trust). This type of trust is funded with the assets of the individual with a disability, often from an inheritance, legal settlement, or other sources. To maintain eligibility for government benefits, certain strict rules must be followed, including payback provisions to Medicaid upon the individual's passing.
- Third-party SNT. A third-party trust is established by family members or loved ones for the benefit of an individual with special needs. Unlike a first-party trust, there is no requirement to pay back Medicaid. These trusts are a popular choice for family members wanting to contribute to the financial security of a loved one with a disability.
Key Benefits of a Special Needs Trust for an Individual With an IDD
The primary benefit of an SNT is that it allows family members to provide “extras” for a disabled individual while they are alive and after they have died without jeopardizing the disabled loved one’s access to important government benefits. Other important benefits include the following.
Preservation of Eligibility
One of the primary purposes of an SNT is to protect the individual's eligibility for means-tested government benefits, such as SSI and Medicaid. Assets held in the trust are not counted for determining eligibility.
Special needs trusts can be used to provide supplemental financial support for goods and services that enhance the individual's quality of life. This can include medical and dental expenses not covered by public programs, education, transportation, entertainment, and more.
Trusted Representative Manages Funds
The trust is managed by a designated trustee, who is responsible for administering the trust in accordance with its terms. Careful selection of a trustee is crucial, and professional trustees or trust companies with expertise in special needs planning are often chosen.
Flexibility and Customization
SNTs are highly customizable to meet the unique needs and preferences of the individual. The trust document can specify the types of expenses the funds can cover and the conditions under which distributions are made.
By carefully navigating the legal and financial complexities of these trusts, families can create a framework that ensures their loved ones receive the support they need throughout their lives. Seeking the guidance of an experienced legal professional is crucial in establishing and maintaining an SNT, providing peace of mind for families and individuals alike. The team at Ross & Shoalmire has worked with dozens of families with disabled dependents over the years, and they welcome your questions about SNTs.
Why You Should Consider a Contingency Special Needs Trust
The thing about disabling accidents or medical conditions is that they can strike anyone at any time. You might not have a dependent with an IDD, but that doesn’t mean you never will. No one wants to live their life in fear that they or a family member will suffer a brain injury in a car accident or be diagnosed with a neurodegenerative condition, but you should still take steps to ensure that your savings will be protected if the worst happens.
Here’s how a contingency SNT works:
- Your Estate Plan establishes that a Special Needs Trust should be set up if a beneficiary of your Will (a spouse or adult child, for example) has become disabled between the execution of your Will and your death.
- Instead of going directly to your loved one, the inherited assets will go into the SNT.
- Your loved one will not lose the SSI or Medicaid benefits they have been collecting and will continue to have access to health care and housing benefits. No one else will have access to the funds.
- The Trustee of the SNT will use the Trust’s funds to pay for uncovered expenses such as entertainment, education, travel, dental care, and more, for the beneficiary.
- Most likely, the funds remaining in the SNT after the beneficiary dies will go to pay back the government programs that supported the individual while they were alive.
If you set up this contingency plan and your beneficiaries are all fully competent at the time of your death, the SNT will not be utilized, and your heirs will inherit directly.